Canadian Controlled Private Corporations (CCPCs)
Introduction
In this edition, Tax Return Filers shed light on two indispensable tools that can revolutionize your financial journey – Qualified Business and the Life Time Capital Gain Exemption.
Qualified Business, a coveted status, offers a myriad of tax advantages and investment opportunities. From fostering business growth to attracting investors, understanding the criteria and implications is crucial for entrepreneurs and investors alike.
Meanwhile, the Life Time Capital Gain Exemption empowers you to maximize your profits by minimizing tax liabilities when selling qualified assets. This incredible incentive can pave the way for reinvestment, expansion, and untold financial possibilities.
What is a qualified business?
If you, your spouse or common-law partner, or a partnership (in which you are a partner) are shareholders of a corporation, there is a possibility that these shares could be considered Qualified Small Business Corporation Shares (QSBCS) if certain conditions are met:
- The shares of the capital stock of a small business corporation must have been owned throughout the last 24 months before they are disposed of.
- These shares must belong to a Canadian-controlled Private Corporation (CCPC), and you, your spouse or common-law partner, or the partnership (in which you are a partner) must collectively own more than 50% of the fair value of the corporation’s assets. These assets must be actively used in a business conducted in Canada by the CCPC or a related corporation, or they may involve shares or debts of connected corporations, or a combination of these types of assets.
- Throughout the 24 months immediately before the share disposal, no one other than you, a partnership of which you were a member, or a person related to you should have owned these shares.
Furthermore, if you, your spouse or common-law partner, own a qualified farm or fishing property (QFFP), it may include:
- A share of the capital stock in a family-farm or fishing corporation owned by you or your spouse or common-law partner.
- An interest in a family-farm or fishing partnership owned by you or your spouse or common-law partner.
- Real property, such as land, buildings, and fishing vessels.
- Property included in capital cost allowance Class 14.1, which could encompass milk and egg quotas or fishing licenses.
Understanding these conditions is crucial for maximizing the potential tax benefits associated with Qualified Small Business Corporation Shares and Qualified Farm or Fishing Property. Our Tax Return Filers’s experts can help in Business tax planning services in Canada.
How the life time Capital gain is calculated?
| With LCGE | Without LCGE | ||
| Year | 2023 | 2023 | |
| Sales amount after Disposition | S | $ 1,500,000.00 | $ 1,500,000.00 |
| Adjusted Cost Basis | C | $ 100,000.00 | $ 100,000.00 |
| Capital gain on sale | CG= S-C | $ 1,400,000.00 | $ 1,400,000.00 |
| 50% of Capital gain is taxable | 50% | $ 700,000.00 | $ 700,000.00 |
| Minus: LCGE limit 2023: $971,190 | $ (700,000.00) | $ – | |
| Taxable income | $ – | $ 700,000.00 | |
| Marginal Tax Rate | 53% | 53% | |
| Taxes payable | $ – | $ 371,000.00 | |
| After-tax amount | $ 1,400,000.00 | $ 1,029,000.00 | |
| Tax savings claiming LCGE | $ 700,000.00 | $ 371,000.00 | |
| LTCGE balance for next use | $ 271,190.00 | 0 | |
If you also want to calculate your own income tax that can also be done by the help of our Canadian Income Tax Calculator tools available on our website.
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